ZAGREB, July 30, 2019 - Croatia's industrial production fell by more than 5% in June 2019 compared with the same month of 2018, its largest decrease since December 2018 and the first after five months of growth, data released by the National Bureau of Statistics (DZS) on Tuesday shows.

According to calendar-adjusted data, industrial production in June 2019 fell by 2.2% from the previous month and sank by 5.6% compared with June 2018. It was the first drop in production after five months of growth and the largest decline since December 2018 when it plummeted by 6.6% year on year.

In June 2019, compared with June 2018, the production of capital goods shrank by as much as 19.1%, the production of non-durable consumer goods declined by 3.8%, the production of intermediate goods fell by 3.7% and that of energy by 1.8%. Only the production of durable consumer goods observed an increase, of 7.8%.

In the first half of 2019, compared with the same period of 2018, industrial production rose by 0.9%. Last year, production contracted by 1%, its first decrease after four years of growth.

Analysts at Raiffeisenbank Austria (RBA) expect that the volume of industrial production will record "a modest, yet positive growth rate" in 2019.

"Industrial production may be supported by solid domestic demand, but a slowdown in Croatia's main foreign trade partners and the still low competitiveness may put a weight on the recovery of industry," RBA said.

Retail sales in Croatia in June 2019 increased by 6.3% on the month and by 6.1% on the year, their highest year-on-year increase since February when they jumped by 8.7%, according to figures released by the National Bureau of Statistics (DZS) on Tuesday.

Retail sales thus returned to positive territory after decreasing by 2% in May year on year, which was their first drop after rising for 56 straight months.

Compared with June 2018, retail sales of food, beverages and tobacco products increased by 5.4%, while sales of non-food products jumped by 8.6%.

In the first half of 2019, compared with the same period of 2018, retail sales rose by 4.4%.

"Looking at the second quarter of this year alone, when retail trade increased by 3% year on year, a slight slowdown can be observed. However, it is quite certain that retail trade reflects and confirms that personal consumption will make the greatest contribution to GDP growth. As a result of positive trends on the labour market, growing credit activity and positive expectations, which will also be encouraged by planned tax reliefs, retail trade is expected to grow in the months ahead, albeit at somewhat more modest rates," analysts at Raiffeisenbank Austria (RBA) said in their comment on the DZS report.

More economic news can be found in the Business section.

ZAGREB, July 30, 2019 - The Consumer Confidence Index continued to rise in June, reaching an all-time high since consumer expectations are measured, data from the Croatian National Bank (HNB) shows.

The increase in optimism in the second quarter of this year compared with the first quarter reflected more favourable movements of all three composite indices.

Compared with May, the Consumer Expectations Index, which reflects the expectations of consumers for the next 12 months with regard to the financial situation of their household and the general economic situation in Croatia, returned to positive territory, from -1.6 to 1.8, rising by 3.4 percentage points year on year.

The Consumer Confidence Index was -2.8, its historically highest level, increasing by 1.3 percentage points from May and by as much as 6.4 percentage points from June 2018. It indicated improved expectations about the financial situation of households in the next 12 months, improved expectations about the economic situation in the country in the next 12 months and improved expectations about purchases of durable goods in the next 12 months compared with the previous 12 months.

The Consumer Sentiment Index, which reveals changes in the financial situation of households in the last 12 months, expectations about the economic situation in the country and expectations in terms of whether it is the right time to purchase durable goods, rose by 10.6 percentage points year on year and by 9.4 percentage points month on month.

Analysts at Raiffeisenbank Austria (RBA) expect the positive movements of the three indices to have a positive impact on retail trade. The National Bureau of Statistics is due to release data on retail sales in June on Tuesday.

More economic news can be found in the Business section.

ZAGREB, July 11, 2019 - The Croatian National Bank (HNB) has increased its projection of economic growth this year to 3.1%, a HNB Council said in a press release on Wednesday.

The current indicators of economic activity and the expected growth of public and private investments as well as household consumption indicate that the growth rate of real GDP in 2019 could be 3.1%, the press release said.

The HNB's forecasts at the end of last year projected a growth of 2.7%, while in spring it was decreased to 2.5%.

The latest increase is in line with the European Commission forecast published yesterday. The Commission revised its forecast of Croatia's economic growth this year to 3.1% from the earlier projected 2.6%.

The HNB also estimates that employment growth and the decrease of unemployment could slow down very gradually, and that this year's inflation rate could shrink to 0.7%.

The surplus on the current and capital accounts is expected at 3.1% of GDP and its reduction in comparison with last year is due to the deeper foreign trade deficit, whose effects are alleviated by the growth of the net export of services and higher absorption of EU funds, the press release said, adding that the relative indicators of foreign indebtedness therefore could slow down.

According to the government's convergence programme, the general government's deficit could be about 0.3% of GDP this year, while the European Commission forecasts a possible budget surplus, the HNB said.

The HNB will therefore continue to implement an expansionary monetary policy and support economic growth, while maintaining a stable kuna-euro exchange rate, the press release said, adding that the expansionary monetary policy and reduced interest on lending by domestic credit institutions resulted in stronger household lending.

The financial system remains moderately exposed to risks, the continuation of economic growth has a positive impact on structural imbalances, non-financial companies have better business results, and households' currency clause and interest risks are being reduced, the HNB said, adding that the banking system remained highly capitalised and liquid.

More news about the Croatian National Bank can be found in the Business section.

ZAGREB, July 10, 2019 - The European Commission on Wednesday revised markedly upward Croatia's GDP growth in 2019 to 3.1% from first estimates of 2.6%.

"Real GDP growth is forecast to pick up to 3.1% in 2019 as a whole before moderating to 2.7% in 2020," the Commission says in its interim European Economic Forecast for the summer 2019.

The Commission also notes that the rise is on the back of domestic demand. "Domestic demand remained the main driver of growth due to strengthening investment and robust household consumption," reads the report.

Croatia's exports rebounded following an unexpected contraction in the previous two quarters. "High frequency indicators, labour market and survey data all suggest strong domestic demand-driven growth should continue throughout 2019."

In the previous Economic Forecast paper issued in May, Croatia's economy was forecast to rise 2.6% this year, and the pace of growth was to decelerate to 2.5% in 2020.

"Croatia’s economy grew by 2.6% in 2018, slightly less than expected due to a particularly weak fourth quarter. However, real GDP growth rebounded beyond expectations in the first quarter of 2019 by 1.2% quarter-on-quarter," reads the latest report issued on Wednesday.

"As wages and employment continue to grow amidst low inflation, household consumption is set to remain the main driver of growth throughout the forecast period.

"Investment growth is expected to strengthen further in 2019 before moderating in 2020, supported by an improved uptake of EU funds and low interest rates.

"Goods exports are expected to rebound in 2019, while service exports are expected to continue easing as supply side constraints become more evident and international competition in the tourism sector intensifies.

Thus, the new report reads that "overall, the contribution of net exports to growth is expected to decrease further in 2019 before improving in 2020, though remaining negative."

Strong final demand growth should be reflected in a pick-up in imports of both goods and services in 2019.

"Employment growth should moderate over the forecast horizon and the unemployment rate is expected to continue declining towards an historic low in 2020," the Commission says.

"In the first five months of 2018, inflationary pressures remained subdued due to negative inflation in unprocessed food prices as a result of changes in the applicable VAT rate adopted in September 2018.

"As labour shortages become more apparent in some sectors, wage growth is projected to accelerate. However, the reduction in the standard VAT rate in January 2020 and stagnating energy prices should dampen inflation. Overall, inflation is forecast to remain subdued at 0.9% 2019 and 1% in 2020."

More news about Croatia’s economic growth can be found in the Business section.

ZAGREB, July 2, 2019 - Economy Minister Darko Horvat said on Tuesday that GDP was growing primarily owing to the state's strong contribution to the implementation of major investment projects and that the second quarter would be better than the first, when GDP grew 3.9%.

Speaking at a conference on exports, organised by the Lider business weekly, Horvat said that independent economic analysts last autumn said that private investments had been kick-started but that big state infrastructure projects were lacking.

"That is what is happening now - investments worth 20 billion kuna. A 11 billion kuna investment cycle has been launched based on projects funded with grants, without loans or guarantees. That is one of the reasons for the GDP growth of 3.9%," said Horvat, expressing confidence that GDP growth in Q2 would be even higher.

He said that EU funds were changing Croatia because they helped launch major infrastructure investments but also because there had been an increase in the share of technology, software and licence imports and the transfer of know-how in the structure of imports.

Horvat also expressed confidence that exporters positively viewed the government's efforts to introduce the euro.

Addressing the event, the head of the northern Croatian Međimurje County, Matija Posavec, said that his county was the most successful in Croatia according to many parameters.

He said that the county's exports were twice the volume of imports, that the county was absorbing EU funds at a high rate and that it worked constantly to improve the business climate.

Owing to local workers' first-class productivity, foreign companies are moving their plants to Međimurje, he said.

He added that 40 business zones were active in the county, that investments were made in the education system and that construction permits were issued in 1-3 days.

The unemployment rate is at 4.4%, the county head said, calling on the state to further reduce the tax burden on the business sector and help raise wages.

More news about Croatia’s economic growth can be found in the Business section.

ZAGREB, July 1, 2019 - President of the Croatian Chamber of Commerce Luka Burilović said on Monday that Croatia had benefited from its membership of the European Union, however, the labour shortage was becoming a burning issue and required a radical approach.

Asked what the past six years of EU membership means for the HGK, Burilović said that Croatia had joined the EU in its "golden years" and that six years on the country was economically stronger.

Croatia joined the European Union on July 1, 2013 as the 28th member of the bloc.

"We have seen continued growth in exports, a decreasing deficit and public debt, lower unemployment and increased employment. Exports to the EU alone have increased by 50 percent and naturally EU membership has inevitably impacted positive economic indicators," he said.

Asked why more EU funding wasn't being absorbed and remained relatively moderate, Burilović said that Croatia has partially failed in that regard, particularly in the earlier years, however in the past two to three years that has improved and he is certain that before the end of the current term the maximum amount at Croatia's disposal of 10.7 billion euro will have been absorbed.

If we significantly use European funds, that alone could increase GDP by two to three percent annually, he said adding that according to forecasts, Croatia's GDP in Q2 could be even higher than 3.9 percent in Q1.

Loss of labour force is Croatia's biggest problem

"Before Croatia joined the EU, we spoke of the lack of jobs and that people could not find work and now we are talking about labour shortages. There is hardly any sector of the Croatian economy that is not seeking workers," Burilović said.

Import quotas for workers have become senseless and it is time for something more concrete to be done. The long-term aim and strategy have to be to adjust the education system with the needs of the labour market and ensure dual vocational education for occupations in greatest demand.

Keeping our people to remain and work here has to first of all be related to increasing salaries, he added. "It is not easy for entrepreneurs but they have to take that additional step because without increasing wages we cannot keep our skilled labour," Burilović concluded.

More news about Croatia and the European Union can be found in the Politics section.

ZAGREB, June 28, 2019 - Retail sales in Croatia in May 2019 were 2% lower than in May 2018, which is the first time they dropped after going up for 56 months.

The national statistical office on Friday published a report on retail trade and its working-day adjusted statistics show that consumption in May was 4.6% down from the previous month and 2% down from May 2018.

Analysts of Raiffeisenbank Austria (RBA) said in their comment on the report that the monthly and annual declines in retail trade had unpleasantly surprised the market, ending a record 56-month streak of growing annual consumption that started in September 2014.

The monthly and annual consumption decreases occurred despite a relatively high degree of consumer optimism and expectations and the fact that wages and employment have continued to grow, the analysts said.

Preliminary figures on tourist arrivals and overnight stays indicate a decline and warn of a high degree of dependence on tourism, the analysts said, noting that they expected retail trade to slow down mildly this year to 3.5%.

Croatia's industrial output in May 2019 was up 0.2% year-on-year, and May was the fifth month in a row to see industrial output rise albeit at a lower rate than in previous months, figures from the national statistical office (DZS) show.

The production of durable consumer goods recorded the highest growth, of 5.6%, followed by energy production, which grew by 1.2%.

The production of non-durable consumer goods increased by 0.7%, followed by the production of intermediate goods, which grew by 0.3%.

On the other hand, the production of capital goods fell by 4.8%.

Industrial production in 2018 dropped by 1% on the year, for the first time after four years of growth.

In the first five months of 2019, industrial output grew by 2.2% compared to the same period of 2018.

More news about Croatian economy can be found in the Business section.

ZAGREB, June 27, 2019 - Economic sentiment in Croatia deteriorated in June due to increased pessimism in the retail sector while consumer sentiment reached an all time high, the European Commission said in a report on Thursday.

The Economic Sentiment Indicator (ESI) for Croatia in June fell by 1.3 points to 112.2 points, the EC said.

Retail trade confidence fell the most, by 2.9 points compared to May, sliding to 5.2 points.

Greater pessimism was expressed in the production and services sectors. The ESI in industry weakened by 1.8 points to 5.2 points while it slipped by 1.4 points to 21.1 points in the services sector.

Consumer confidence reached an all time high, increasing by 0.6 points to minus 1.8 points.

Sentiment in the construction sector also increased mildly, by 0.3 points to 16 points.

More news about Croatian economy can be found in the Business section.

ZAGREB, June 17, 2019 - The Croatian economy's main problem at the moment is a labour shortage so quotas for foreigners should be urgently abolished, Chamber of Commerce (HGK) president Luka Burilović said on Monday.

"At nearly four percent, economic growth is finally approaching the rates we desired and expected, and interest rates are at the lowest levels. But the labour shortage is the main obstacle to the continuation of those positive trends. It's the issue of all issues at the moment," he said at an HGK Assembly meeting.

Burilović said the government had listened to the economic sector in the preparation of new regulations and that it was drawing up amendments to the law on foreigners that are expected to abolish quotas and facilitate the hiring of foreigners.

"It's a step in the right direction, but we must... put the draft of the new bill on foreigners to public consultation as soon as possible," he said.

The HGK Assembly adopted a report on the HGK's work in 2018 which shows that revenues totalled 208.1 million kuna, 11.5 million more than in 2017. Expenditures were lower than revenues by 19,800 kuna.

Revenues from EU projects increased by 14.8 million kuna to 33.1 million, and revenues from membership fees by 3.9 million kuna to 151.8 million.

It was announced that HGK will open offices in Vienna, Munich, Milan and Istanbul, and sell its building in Brussels.

More news about Croatian economy can be found in the Business section.

ZAGREB, June 11, 2019 - The Karlovac-based HS Produkt arms manufacturer was given two Financial Agency (FINA) Golden Balance awards on Tuesday - for the most financially successful business and for the most successful manufacturer of 2018.

Of the 131,118 businesses which submitted financial statements, FINA shortlisted 3,930 - 208 micro-enterprises, 2,527 small enterprise, 978 medium-sized enterprises and 217 big companies.

Speaking at the award ceremony, Economy Minister Darko Horvat recalled that the economy grew 2.6% last year, and said the first quarter of 2019, when GDP rose 3.9% on the year, had opened "a new perspective" and that Q2 "will be similar."

"If we succeed and persist with the National Reform Plan, if we absorb the entire 10.7 billion euro allocated from the EU's structural funds, we will end with 5% growth in 2020," Horvat said.

He said the Economy Ministry and FINA cooperated on several projects, including a law that would make it possible to exchange e-invoices through the existing infrastructure as of next year. "We will be able to monitor businesses on a monthly basis and discover early on which ones are in trouble so as to avoid omissions which cost us 4.5 billion kuna in state budget funds this year and last."

Speaking of the Croatian Employers' Association's Score, Horvat said it interpreted the facts pertaining to 2018 with a different methodology.

We in the government are patient and waiting for the 2019 Score because there will be no enforced guarantees for the shipyards and budget funds won't be spent on unpromising industries, he added.

Economic analyst Velimir Šonje presented the business results of Croatian enterprises in 2018.

Last year 131,000 enterprises submitted financial statements, as against 120,000 in 2017. The number of employees increased 5.2% to 940,000 and two-thirds of the increase was generated by micro-enterprises.

Croatian enterprises' revenues in 2018 went up 8.6% to HRK 751.2 billion and the fastest growth was again recorded by micro-enterprises, whose revenues jumped 29% to HRK 102.1 billion.

Šonje said the number and share of big companies in Croatia's corporate pyramid remained unchanged, dominated by energy companies and retail chains.

Micro-businesses continue to growth fast, creating the highest number of jobs, and keeping this pace is important for preserving the development process and the structural changes that will happen in the long term, after years of growth, he added.

More news about Croatian economy can be found in the Business section.